High Global Uncertainty, BI Reveals Investors Search For Safer Assets

Illustration (Photo: Doc. ANTARA)

JAKARTA - Bank Indonesia (BI) revealed that due to the dynamics of the global financial economy, it has changed rapidly with increased risks and uncertainties due to changes in the direction of US monetary policy and worsening geopolitical tensions in the Middle East, causing the issuance of foreign capital flows and weakening exchange rates in various developing countries.

BI Governor Perry Warjiyo said that the high inflation and strong economic growth of the United States (US) have driven speculation of a smaller and longer Fed Funds Rate (FFR) decline than expected (high for longer) in line with statements by Federal Reserve System officials.

"This development and the large need for US debt have resulted in continued increase in US Treasury yields and global strengthening of the US dollar," Perry said at a press conference, Wednesday, April 24, 2024.

According to Perry, the stronger the US dollar was also driven by the weakening of a number of world currencies such as Japan's Yen and China's Yuan.

In addition, Perry said, the uncertainty of the global financial market which is getting worse due to the escalation of geopolitical tensions in the Middle East has made global investors move their portfolios to safer assets, especially US dollars and gold currencies, causing capital escape to come out and weakening exchange rates in developing countries.

Perry said that in the future, risks related to the direction of decreasing FFR and the dynamics of global geopolitical tensions will continue to be observed because it can encourage continued uncertainty in global financial markets, increasing inflationary pressures, and declining prospects for world economic growth.

"This condition requires a strong policy response to mitigate the negative impact of this global uncertainty on the economy in developing countries, including in Indonesia," he said.